Foreign Relations of the United States, 1952–1954, General: Economic and Political Matters, Volume I, Part 2

S/S–NSC (Miscellaneous) files, lot 66 D 95, “Miscellaneous Memos, 1954”

The Assistant Attorney General (Barnes) to the Executive Secretary of the National Security Council (Lay)¹

secret

Washington, October 29, 1954.

Re: NSC Action 766c,² that the Attorney General would be prepared to submit his recommendations, based on a restudy of the antitrust laws with particular attention to existing provisions relating to operations by Americans wholly outside the United States

Dear Mr. Lay: The Attorney General will probably not receive the report of his National Committee to Study the Antitrust Laws before January 1955. Because of this fact, he has requested Stanley N. Barnes, Assistant Attorney General in charge of the Antitrust Division and one of the Co-Chairmen of the Committee, to discuss with the National Security Council the probable recommendations that group will make.

As background, it should be emphasized that Congress has in language unequivocal expressed its purpose that antitrust should apply to “commerce …³ with foreign nations.” So it is that the Sherman Act applies to “commerce among the several states or with foreign nations …” (15 U.S.C. (1952) 1, 2, 3). And Section 8 of that Act specifies that “the word ‘person’ includes corporations ‘existing’ under the laws ‘of any foreign country.’” (15 U.S.C. (1952) 8) In like fashion, the Clayton Act covers within its definition of commerce “trade or commerce … with foreign nations.” (15 U.S.C. (1952) 12) And the Wilson Tariff Act of 1894 applies to those “engaged in importing any article from any foreign country into the United States.” (15 U.S.C. (1952) 8) Similarly note the Tariff Act of 1930 (19 U.S.C. (1952) 1337); and the anti-dumping provisions of the Revenue Act of 1916 (15 U.S.C. (1952) 72).

Further emphasizing Congressional design that antitrust law apply generally to foreign commerce is the fact that Congress saw fit carefully to limit the immunities granted to American corporations operating abroad by the Webb–Pomerene Act of 1918. Thus the antitrust exemption that law grants is limited to associations “entered into for the sole purpose of engaging in export trade” or agreements “made … in the course of export trade by such association” (15 U.S.C. 62, 1952). The Act applies only, however, where the association or act “is not in restraint of trade within the United States and is not in restraint of the export trade of any domestic competitor of such association” (15 U.S.C. 62, 1952). And the Supreme Court, construing Webb–Pomerene, has observed that there “is a strong indication that there was no thought of depriving the Attorney General of any of his powers to prosecute antitrust suits.” (United States Alkali Export Ass’n v. United States, 325 U.S. 196, 211 (1945)). As one lower court put it, it seems clear “whatever exemptions the Webb Act did bestow upon associations organized thereunder, it affirmatively appears upon the face of the statute that Congress did not intend thereby to abandon the rule of competition as applied to our export trade” (66 F. Supp. 59, 67, S. D. N. Y. 1949).

I. Scope of the Committee’s Inquiry

At the outset it should be understood that the Committee is not a fact-finding body. The group has no subpoena powers, has been supplied with no research or fact-gathering staffs. There will therefore be no generalizations as to the past effects of antitrust on achievement of national security foreign policy, or on international trade groups. Instead of generalizing about past policies, it will make recommendations built on the treatment by the courts of various problems with an eye toward avoiding any future policy conflicts.

II. Amendment of Antitrust Laws as Applied to Foreign Commerce

The American Bar Association Committee on International Trade Regulation in its August 1953 report on the Impact of the Antitrust Laws on Foreign Trade recommends that “antitrust laws … [should be] clearly and explicitly amended to eliminate their extraterritorial effect and to keep their application to the foreign commerce of the United States within due bounds.” (Id. at 36) More specifically, that report recommends legislation legalizing certain combinations between United States competitors unless such combinations “directly or substantially restrain the foreign commerce of the United States or substantially decrease competition between the owners of the enterprise in the domestic market of the United States.” (Id. at 37)

This and like proposals have been discussed at various work group meetings, as well as by the entire Committee, in Ann Arbor. One or two members have spoken in favor of such Sherman Act amendment. The Committee apparently believes, however, these problems can best be solved by judicial and administrative construction of existing law, rather than by statutory amendment. And suggestions hereinafter enumerated for construction of the existing law go, in the opinion of the Committee, a long way toward meeting many of the difficulties the ABA sought to treat by way of amendment.

Prognostication: No amendment of the Sherman Act, as applied to foreign commerce.

III. Extraterritorial Jurisdiction

The Committee apparently believes that in taking jurisdiction over acts committed abroad by Americans alone, by Americans joined with foreign nationals, and by foreign nationals whose deeds affect the foreign commerce of the United States, the Department should at all times consider questions of international comity.

A. It should be here recalled that both American Banana Company v. United Fruit Company (213 U.S. 347 (1909)) U.S. v. Aluminum Company of America (148 F. 2d 416 (2nd Cir. 1945)) rested conclusions regarding extraterritorial application on “the international complications” likely to stem from over-extension of antitrust jurisdiction. As Judge Hand expressed the thought in Alcoa (148 F. 2d 416), “we are concerned only with whether Congress chose to attach liability to the conduct outside the United States to persons not in allegiance to it….” The Court then says that if Congress intended to impose the liability and if the Constitution permitted it to do so, the Court cannot look beyond the Congressional intent properly expressed in law. Nevertheless:

“It is quite true that we are not to read general words, such as those in this Act, without regard to the limitations customarily observed by nations upon the exercise of their powers; limitations which generally correspond to those fixed by the ‘Conflict of Laws.’ We should not impute to Congress an intent to punish all whom its courts can catch, for conduct which has no consequence within the United States…. On the other hand, it is settled law—as ‘Limited’ [one of the corporate defendants] itself agrees—that any state may impose liabilities, even upon persons not within its allegiance, for conduct outside its borders that has consequences within its borders which the state reprehends; and these liabilities other states will ordinarily recognize…. It may be argued that this Act extends further. Two situations are possible. There may be agreements made beyond our borders not intended to affect imports, which do affect them, or which affect exports. Almost any limitation of the supply of goods in Europe, for example, or in South America, may have repercussions in the United States if there is trade between the two. Yet when one considers the international complications likely to arise from an effort in this country to treat such agreements as unlawful, it is safe to assume that Congress certainly did not intend the Act to cover them.”

Prognostication: The Committee will approve the intent and spirit of the foregoing

B. As a practical matter, the Committee will probably emphasize the use of clauses in decrees, whether by judgment or consent, similar to the ones discussed in British Nylon Spinners, Ltd. v. Imperial Chemical Industries, Ltd. (All Engl. L. Rep. Vol. 2, p. 780, 784 (1952)). As the concurring opinion there observed; “[T]here is a saving clause which prevents any conflict, because, although the defendant company has been ordered to do certain acts by the United States Court, nevertheless there is a provision which says that nothing in the judgment shall operate against the company for action taken in complying with the law of any foreign government or instrumentality thereof to which the defendant company is for the time being subject. In view of that saving clause I hope that there will be no conflict between the orders.” For similar decree provisions see United States v. General Electric Co., et al. (82 F. Supp. 753 (D. C. N. J. 1949)), (115 F. Supp. 835 (D. C. N. J. 1953)) and In re Investigation of World Arrangements with Relation to the Production, Transportation, Refining & Distribution of Petroleum (13 F.R.D. 280 (D.C. D.C. 1952)).

Prognostication: The Committee will recommend use of such saving clauses.

C. The Committee apparently feels that the Attorney General should consult with the National Security Council before instituting antitrust action in a foreign field. This is an apparent effort to avoid problems that may have stemmed from the institution of proceedings in the oil cartel case. Resolution of conflict in any case between antitrust and our foreign or security needs could thus be reconciled, in accord with the classic dictates of United States v. Curtiss–Wright Corp. (299 U.S. 304), by the President through his appointed representatives.

The Committee seems to agree that the prime responsibility in this area rests not on the Attorney General, but on the President. As the Supreme Court put it in the Curtiss–Wright case:

“In this vast external realm … the President alone has the power to speak or listen as the representative of the nation…. He manages our concerns with foreign nations…. It is important to bear in mind that we are here dealing not alone with authority vested in the President by an exertion of legislative power, but with such an authority plus the very delicate, plenary and exclusive power of the President as the sole organ of the federal government in the field of international relations—a power which does not require as a basis for its exercise an act of Congress, but which, of course, like every other governmental power, must be exercised in subordination to the applicable provisions of the Constitution.” (Id. at 319–320)

Prognostication: Recommendation that the Attorney General consult with the National Security Council on any antitrust action involving foreign commerce.

IV. Measuring Injury to Foreign Commerce of the United States

The fear that injury to foreign commerce might be measured solely by reference to export and import of goods was engendered by certain dicta in United States v. Timken Co. (341 U.S. 593 (1949)) and United States v. Minnesota Mining and Manufacturing Co. (92 F. Supp. 947 (D.C. Mass. 1950)). In Timken, argument was advanced that foreign trade and exchange restrictions made it necessary for the defendants to operate abroad “through the ownership of stock in companies organized and manufacturing there.” (341 U.S. 593, 599) While it would have been sufficient to answer that argument by pointing out that even in its own terms it did not justify illegal combination with a major competitor abroad, the Court went further commenting,

“that the provisions in the Sherman Act against restraints of foreign trade are based on the assumption, and reflect the policy, that export and import trade in commodities is both possible and desirable. These provisions of the Act are wholly inconsistent with appellant’s argument that American business must be left free to participate in international cartels, that the free foreign commerce in goods must be sacrificed in order to foster export of American dollars for investment in foreign factories which sell abroad.”

This contention, the Court said, “would make the Sherman Act a dead letter…. If such a drastic change is to be made, Congress is the one to do it.” (Id. at 599)

This statement was not necessary to answer the defense argument—if the case is viewed as one of combination between an American company and its British competitor. Nevertheless, its possible implication that any American investment for production abroad involves pro tanto a restraint on American exports of goods deserves careful consideration and possible rejection.

This doubtful construction of the dictum in Timken is supported by certain language in United States v. Minnesota Mining and Manufacturing Company (92 F. Supp. 947 D. C. Mass., 1950). That case concerned the legality of an arrangement through which four American competitors, which with their associates had formerly done over 86% of the American export business in the relevant market, had combined to run factories in England and Canada. The decree requires joint control of the foreign companies to be abandoned. For the conclusion of illegality, two reasons are advanced: (1) the combination of important, perhaps dominant, American competitors in the ownership of a foreign subsidiary restrains the foreign commerce of the United States, through its effect on American exports; and (2) by way of dictum, the association of American competitors abroad develops habits in restraint of trade which would adversely affect their competition at home. The Court continued, however, to say:

“it is no excuse for the violations of the Sherman Act that supplying foreign customers from foreign factories is more profitable and in that sense is, as defendants argue, ‘In the interest of American enterprise’ [Def. Rep. Br. 31]. Financial advantage is a legitimate consideration for an individual non-monopolistic enterprise. It is irrelevant where the action is taken by a combination and the effect, while it may redound to the advantage of American finance, restricts American commerce. For Congress in the Sherman Act has condemned whatever unreasonably restrains American commerce regardless of how it fattens profits of certain stockholders. Congress has preferred to protect American competitors, consumers and workmen.” (Id. at 962)

At another point, the Minnesota Mining Court said that any factory established abroad by a single American company would “be a restraint upon American commerce with foreign nations” although not accomplished by combination or conspiracy, and hence not in violation of Section 1.

Insofar as Minnesota Mining holds the Sherman Act applicable to combinations between a dominant group of American competitors, and Timken to combinations between a dominant American company and its chief foreign competitor, their basic reasoning seems correct. However, these dicta, taken out of context, should not develop into a mercantilist policy of discouraging American investment abroad in the name of protecting American manufacturing. The basic aims of the Sherman Act require that the words “trade and commerce” have the same scope in their application to foreign as to domestic commerce. The Sherman Act is not of course intended to protect foreign consumers against monopoly in their home markets. Instead its operative hypothesis in the foreign field should be to encourage the competitive allocation of American resources to investment either at home or abroad depending on the usual indicia of profit, in the interest of maximizing the long-run economic welfare of the United States. This may involve the export and import of goods or the receipt of dividends, interest, and profits on foreign investments. Both types of transactions have the same place in United States’ balance of payments and may contribute equally to well being of the American people.

Prognostication: The Committee will recommend that the Courts should recognize that foreign commerce includes not only export and import of goods but also capital invested. In this way national foreign commerce objectives can best be reconciled with antitrust enforcement.

V. National Foreign Trade Policy

Antitrust must not hinder the nation’s foreign trade policy efforts to overcome foreign political and economic barriers to American trade and investments abroad.

A. As the Court put it in United States v. Minnesota Mining and Manufacturing Company (92 F. Supp. 947, 958 (1950)):

“It is axiomatic that if over a sufficiently long period American enterprises, as a result of political or economic barriers, cannot export directly or indirectly from the United States to a particular foreign country at a profit, then any private action taken to secure or interfere solely with business in that area, whatever else it may do, does not restrain foreign commerce in that area in violation of the Sherman Act. For, the very hypothesis is that there is not and could not be any American foreign commerce in that area which could be restrained or monopolized.

“Since there is no offense against the foreign commerce clause of the Sherman Act if political or economic conditions meet the conditions of the hypothesis just stated,” the Court went on, “it is legitimate for defendants to show such political and economic conditions, if they exist.”

Prognostication: The Committee will probably support this reasoning.

B. There exists a difference of opinion over whether the Sherman Act should apply where it is not impossible to do business abroad but merely more convenient to do business abroad by means which, if employed in domestic commerce might violate the antitrust laws. Again, to refer to the words of the Court in the Minnesota Mining case:

“It is not [here] claimed that the United Kingdom imposed a legal ban upon imports of abrasives. Nor is it asserted that economically no American coated abrasives could be profitably exported to the British market. The precise contention is that it was economically impractical to continue to export to Britain a large volume of such abrasives. Stated in another way this means … only that it was more profitable to make abrasives in Britain than to export them to Britain.” (92 F. Supp. 947, 959 D.C. Mass. (1950))

As a result, the Court found:

“as an ultimate fact that defendants’ decline in exports to the United Kingdom is attributable less to import and currency restrictions of that nation and to the preferential treatment afforded to British goods by British customers than to defendants’ desire to sell their British-made goods at a large profit rather than their American-made goods at a smaller profit and in a somewhat (but not drastically) reduced volume.” (Id. at 961)

Prognostication: The Committee may likely be unable to reach agreement on this subject, and there may be a minority expression of opinion.

VI. The Defense Production Act

This Act authorizes Government officials to consult with business and other groups in order to encourage voluntary action to carry out national defense objectives. Under it, the President may request members of an industry to enter into a voluntary agreement or program, upon a finding that it is vital to the national defense. No act or omission to act pursuant to any such voluntary agreement, the Act provides, shall be construed to be within the prohibitions of the antitrust laws while the Act is in effect.

A. In practice, the President has delegated his power to request voluntary agreements principally to the Office of Defense Mobilization (ODM). Upon such delegation under the Act, all requests for voluntary agreements are conditioned upon the approval of the Attorney General. Under the procedure now in effect, the Attorney General, upon submission by ODM, considers such proposed agreements and, prior to approval, seeks to have the parties conform them to the antitrust laws insofar as possible, having in mind the objectives of the particular agreement or program. The Attorney General has recognized, of course, that some activities, otherwise illegal, such as those involving cooperation between competitors in defense projects, have been necessary to accomplish the purposes of the Act. Approximately 70 voluntary agreements or programs have been thus approved. In only one or two cases has approval been withheld, and in these cases alternative plans have been worked out.

Prognostication: The Committee will recommend that at least with respect to programs for preserving the supply of critical and strategic materials from abroad, the Defense Production Act should be further extended.

B. The Committee has discussed larger exemptions. It has been suggested that for a designated period beyond the Act’s expiration, conduct requested or approved by the President shall not be subject to antitrust. Conduct authorized by the President may require committing large funds for long periods of time—indeed, periods that may stretch beyond the Act’s short extensions. To protect such investments, antitrust immunity should, in some instances, be extended beyond the Act’s termination.

However, such immunity should be conditioned upon express findings when the conduct was undertaken: first, that national defense required its duration beyond the expiration of the Defense Production Act; and second, that before granting the immunity, consideration was given to the possibility of accomplishing the same defense objectives by alternative methods involving less restriction on competition.

Prognostication: The Committee will probably recommend thus broadening the Defense Production Act.

Respectfully submitted,

Stanley N. Barnes

1. Attached to the source text was a copy of a memorandum of Nov. 1, 1954, from Lay to the National Security Council transmitting Barnes’ preliminary report and noting that the Attorney General’s definitive recommendations on the subject were not expected to be ready for submission to the Council prior to the Committee’s final report in January 1955. A note on this memorandum indicates that copies of Barnes’ preliminary report were also sent to the Secretary of the Treasury, the Attorney General, the Director of the Bureau of the Budget, the Chairman of the Joint Chiefs of Staff, and the Director of Central Intelligence.
2. Regarding NSC Action No. 766–c, see the memorandum of discussion at the 140th meeting of the National Security Council, Apr. 22, 1953, p. 1351.
3. Ellipses and brackets throughout in the source text.